Greg Quinn wrote an article in the Bloomburg Businessweek discussing how Canada and other resource rich countries are currently being favored by global recovery amidst the European sovereignty-crisis. The fact that Canada has experienced the fastest growth in a decade supports this theory which in turn, has helped its currency appreciate, specifically against the US dollar and the Euro.
The European sovereignty-debt crisis has actually lessened the urgency for Canadian policy makers to increase interest rates and Bank of Canada Governor Mark Carney doesn’t sense any hurry to start tightening the monetary policy. As Sibonney and Kwan wrote in the Reuters article, “the domestic economy is screaming for rate hikes, but it takes a very brave central bank indeed to begin raising rates in the face of this financial storm.”
The decision to raise the interest rates in June, and by how much, will be a reflection of how threatened the Bank of Canada feels by the European crisis. There will probably still be a hike in interest rates but Canada needs to experience some more stability in equity and commodity markets in order for that to occur. Ultimately, investors continue to predict that interest rates will go up almost 1% over the next 12 months which would make Canada the first G-7 country to hike rates since the financial crisis began.